M&T Bank Corporation

Please stand by, your program is about to begin. Welcome to the M&T Bank third quarter 2025 earnings conference call. All lines have been placed in a listen only mode and the floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press star then the number one on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star two. When posing your question, we do ask that you please pick up your handset to allow for optimal sound quality. Lastly, if you should require operator assistance, please press star zero. Please be advised that today's conference is being recorded. I would now like to turn the conference over to Steve Wendelbo, Senior Vice President, Investor Relations. Please go ahead, sir.

Thank you, Katie, and good morning. I'd like to thank everyone for participating in M&T's Bank's Third Quarter 2025 Earnings Conference Call. If you have not read the earnings release we issued this morning, you may access it along with the financial tables and schedules by going to our investor relations website at ir.mtb.com. Also, before we start, I'd like to mention that today's presentation may contain forward-looking information. Cautionary statements about this information are included in today's earnings release materials and in the investor presentation as well as our SEC filings and other investor materials. Presentation also includes non-GAAP financial measures as identified in the earnings release and investor presentation. The appropriate reconciliations to GAAP are included in the appendix. Joining me on the call this morning is M&T's Senior Executive Vice President and CFO, Darryl Beibel. Now I'd like to turn the call over to Darryl.

Thank you, Steve, and good morning, everyone. M&T continues to serve as a trusted partner for our customers and communities, bringing together people, capital, and ideas to make a difference. Earlier this quarter, we released our 2024 Sustainability Report, which highlights our community impact and the progress we've made towards meeting our sustainability goals. Highlights include $5 billion in sustainable lending and investments, and over $58 million contributed to nonprofits through corporate giving and the M&T Charitable Foundation. We are also proud to share that M&T is now the top SBA lender across our footprint by total volume as of the end of the SBA fiscal year, September 30th. Our small business enterprise continues to be an important component of our support for entrepreneurs and local economies. Turning to slide four, our businesses and leaders notably our women in leadership continue to receive accolades from the industry, including recognition of our Wilmington trust team and individual recognition for leaders across the bank. Turn to slide six, which shows the results for the third quarter. Our third quarter results reflect M&T's continued momentum with several successes to highlight. We produced strong returns with operating ROTA and ROTCE of 1.56% and 17.13%. Our net interest margin expanded to 3.68%, demonstrating our relatively neutral asset sensitivity, well-controlled deposit and funding costs, and the continued benefit of fixed-rate asset repricing. Strong fee income performance we have seen throughout the year continued, with fee income excluding notable items reaching a record level. revenues grew more than expenses, resulting in our third quarter efficiency ratio of 53.6%. Asset quality continues to improve with a $584 million or 7% reduction in commercialized criticized balances and $61 million or 4% reduction in non-accrual loans. We increased our quarterly dividend per share by 11% to $1.50, and executed a $409 million in share repurchases are also growing tangible book value per share by 3%. Now, let's look at the specifics for the third quarter. Diluted gap earnings per share were $4.82, up from $4.24 in the prior quarter. Net income was $792 million compared to $716 million in the linked quarter. M&T's third quarter results produced an ROA and ROCE of 1.49% and 11.45% respectively. The third quarter included a notable fee item of $28 million related to the distribution of an earn-out payment to M&T associated with a 2023 sale of our CIT business, adding 14 cents to EPS. Slide 7 includes supplemental reporting of M&T's results on a net operating or tangible basis. M&T's net operating income was $798 million compared to $724 million in the linked quarter. Diluted net operating earnings per share were $4.87, up from $4.28 in the prior quarter. Next, we look a little deeper into the underlying trends that generated our third quarter results. Please turn to slide 8. Taxable equivalent net interest income was $1.77 billion, an increase of $51 million, or 3%, from the linked quarter. The net interest margin was 3.68%, an increase of six basis points from the prior quarter. This improvement was driven by a positive four basis points related to the prior quarter catch-up premium amortization on certain securities, positive three basis points from higher asset liability spread, mostly from continued fixed asset repricing, partially offset by lower contribution of net free funds. Turn to slide 10 to talk about average loans. Average loans and leases increased $1.1 billion to $136.5 billion. Higher commercial, residential mortgage, and consumer loans were partially offset by a decline in CRE balances. Commercial loans increased $0.7 billion to $61.7 billion aided by growth in our corporate and institutional fund banking and loans to REITs. CRE loans declined 4% to $24.3 billion reflecting the full quarter impact of last quarter's loan sale and continued payoffs and paydowns. Residential mortgage loans increased 3% to $24.4 billion. Consumer loans grew 3% to $26.1 billion reflecting increases in recreational finance and HELOC, where our auto loans were largely stable from the second quarter. Loan yields increased three basis points to 6.14%, aided by continued fixed rate loan repricing, including a reduction in the negative carry on our interest rate swaps at sequentially higher non-accrual interest. Turning to slide 11, our liquidity remains strong. At the end of the third quarter, investment securities and cash held at the Fed totaled $53.6 billion, representing 25% in total assets. Average investment securities increased $1.3 billion to $36.6 billion. In the third quarter, we purchased a total of $3.1 billion in securities with an average yield of 5.2%. The yield on the investment securities increased to $4.2 three and a half years, and the unrealized pre-tax gain on available for sale portfolio was $163 million, or eight basis points to ET1 benefit if included in regulatory capital. While not subject to the LCR requirements, M&T estimates that its LCR on September 30th was 108%, exceeding the regulatory minimum standards that would be applicable if we were a Category 3 institution. Turning to slide 12. Average total deposits declined $0.7 billion to $162.7 billion. Non-interest-bearing deposits declined $1.1 billion to $44 billion, mostly from lower commercial non-interest-bearing deposits related to a single customer client. We continue to consider the entirety of the customer relationships as we assess our overall deposit funding mix. Interest-bearing deposits increased $0.4 billion to $118.7 billion, driven by growth in commercial and business banking, offset by the decline in consumer and institutional deposits. Interest-bearing deposit costs decreased two basis points to 2.36%, aided by lower retail prime time deposit costs and lower interest checking costs across other business lines. Continuing on slide 13, non-interest income was $752 million compared to $683 million in the linked quarter. We saw continued strength across all fee income categories. Mortgage banking revenues were $147 million, up from $130 million in the second quarter. Residential mortgage revenues increased $11 million sequentially to $108 million from higher servicing fee income. Commercial mortgage banking increased $6 million to $39 million. Trust income was relatively unchanged at $181 million as the prior quarter seasonal tax preparation fees were largely offset by growth in wealth management and fee income. Trading in FX increased $6 million to $18 million from higher commercial customer swap activity. Other revenues from operations increased $39 million to $230 million. reflecting $28 million distribution of an earn-out payment, $20 million pay-view distribution, and the gain on the sale of equipment leases. These items were partially offset by $25 million in notable items in the prior quarter. Turning to slide 14, non-interest expenses for the quarter were $1.36 billion, increased to $27 million from the prior quarter. Salaries and benefits increased $20 million to $833 million, reflecting one additional working day and higher severance-related expense, which increased $17 million sequentially. FDIC expense decreased $9 million to $13 million, mostly related to the reduction in estimated special assessment expense. Other costs of operations increased $23 million to $136 million, reflecting higher expense associated with the supplemental Executive Retirement Savings Plan due to market performance and the impairment of renewable energy tax credit investment. The efficiency ratio was 53.6% compared to 55.2% in the linked quarter. Next on slide 15 for credit. Net charge-offs for the quarter were 146 million, or 42 basis points, increasing from 32 basis points in the linked quarter. The increase in net charge-offs reflects the resolution of several previously identified C&I credits, the two largest of which totaled $49 million. CRE losses remain muted in the third quarter. Non-accrual loans decreased by $61 million. The non-accrual ratio decreased six basis points to 1.1%, driven largely by payoffs, paydowns, charge-offs of commercial and CRE non-accrual loans. In the third quarter, we recorded a provision for credit losses of $125 million compared to net charge-offs of $146 million. Included in the provision expense is a $15 million provision for unfunded commitments related to the letter of credit to a commercial customer. The allowance for loan loss as a percent of total loans decreased three basis points to 1.58%, reflecting lower criticized loans. Please turn to slide 16. The level of criticized loans was $7.8 billion compared to $8.4 billion at the end of June. The improvement from the linked quarter was largely driven by $671 million decline in CRE criticized balances. The decline in CRE criticized balances was broadly based with lower criticized balances across nearly all property types. Turning to slide 19 for capital, M&T CET1 ratio was an estimated 10.99% unchanged from the second quarter. The stable CET1 ratio reflects capital distributions, including $409 million in share repurchases offset by continued strong capital generation. In the third quarter, we also increased our quarterly dividend by 11% to $1.50. The AOCI impact on the CET1 ratio from available pension-related components combined would be approximately 13 basis points if included in regulatory capital. Now turning to the slide for the outlook. First, let's begin with the economic backdrop. The economy continues to hold up well despite ongoing concerns and uncertainty regarding tariffs and other policies. The passage and signing of the One Big Beautiful Bill Act into law removed one source of uncertainty and also gave businesses more incentive to invest in new capital. The economy bounced back in the second quarter after having contracted in the first. Consumer spending proved resilient despite tariff impacts. Businesses continued engaging in CapEx, though it was heavily in tech, software, and transportation equipment, while spending on new buildings remained in decline. Although overall economic activity was resilient, We remain attuned to the risk of the slowdown in coming quarters due to the weakening labor market. The possibility of declining jobs or the rise in the unemployment rate would likely cause weaknesses in consumer spending and possibly business capex too. We continue to monitor the possibility of a prolonged government shutdown and the potential impact on our customers, communities, and broader economy. We remain well positioned for a dynamic economic environment with a strong liquidity, strong capital generation, and a CET1 ratio of nearly 11%. Now turning to Outlook. We have three quarters of the year complete. We will focus on the Outlook on the fourth quarter. We expect taxable equivalent NII of approximately $1.8 billion, which implies full-year NII, excluding notable items to be at the low end of the $7 billion. to $7.15 billion range in line with the outlook we discussed in September. Fourth quarter net interest margin is expected to be approximately 3.7%. Our forecast reflects two additional rate cuts in the fourth quarter. We expect continued long growth and average total loans of $137 to $138 billion with growth in CNI, residential mortgage, and consumer and a moderating pace in CRE decline. Average deposits are expected to be 163 to 164 billion. Our outlook for the fourth quarter non-interest income was 670 to 690 million, reflecting continued strength in mortgage, trust, service charges, and commercial services. We expect other revenues from operations to revert toward more normalized levels. This would imply full-year non-interest income excluding notable items well above the top end of our prior range of $2.5 to $2.6 billion. Fourth quarter expenses, including intangible amortization, are expected to be $1.35 to $1.37 billion. This would imply a full year expense in the top half of our prior outlook of $5.4 to $5.5 billion. This is being driven by an increase in professional services. Net charge-offs for the fourth quarter are expected to be 40 to 50 basis points with a full year net charge-offs of less than 40 basis points. Our outlook for the fourth quarter tax rate is 23.5 to 24%. We plan to operate with a CET1 ratio in the 10.75 to 11% range for the remainder of the year. We will be opportunistic with share repurchases. and asset quality trends. As shown on slide 21, we remain committed to our four priorities, including growing our New England and Long Island markets, optimizing our resources through simplification, making our systems resilient and scalable, and continuing to scale and develop our risk management capabilities. To conclude on slide 22, our results underscore an optimistic investment thesis. M&T has always been a purpose-driven organization with a successful business model that benefits all stakeholders, including shareholders. We have a long track record of credit outperforming through all economic cycles while growing within the markets we serve. We remain focused on shareholder returns and consistent dividend growth. Finally, we are disciplined at briefly review the instructions.

Thank you. At this time, if you would like to ask a question, please press star 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing star 2. Once again, that is star 1 to ask a question. We will pause for just a moment to allow questions to queue. Our first question will come from Scott Seifers with Piper Sandler. Your line is open.

Good morning, Daryl. Thank you for taking the question. I wanted to ask first on loan growth. So, you know, really good traction in a few components of the loan portfolio, but CRE is still moderating, albeit at a slower pace. Maybe just sort of a thought on where we stand with the actual inflection of the CRE book, sort of timing and magnitude, stuff like that.

Yeah, so if you want to talk about CRE and our customers in CRE, I would say it's looking like much more of a rebound now. The amount of production that's being done and that's going through our system and our approval rates are double what they were in prior quarters. So we're really producing and having a lot more activity. Still having some payoffs and paydowns overall, but we feel very optimistic on the growth of that coming in the next quarter or two. If you look at the areas that we're really focused on right now, It's primarily in multifamily with industrial close second. We also are interested in looking at retail, hotel, and healthcare. That's on a case-by-case basis. But office, we know pretty much we're still looking to reduce there. But then overall, I think we're really moving in the right direction and feel very good of what we're seeing and have real good positive trends moving forward.

Perfect. Okay, thank you. And then, you know, maybe just if you could expand upon your thoughts on sort of M&T's position in the now consolidating large regional environment, just kind of given all the events of the last few weeks. I think you all have been quite transparent about what you'd be interested in and have such a history of discipline. But, you know, just curious now that we're actually seeing activity, how do you sort of balance the, you know, need to have willing sellers, does it cause you at all to sort of expand your geographic base a little to increase the number of possibilities, or will you simply kind of stay close to your knitting?

Scott, we've been very successful with the model that we've had for a very long time, and our strategy is really to continue to grow, share, and customers in the markets that we serve. So I'm sure an acquisition will come at some point down the road, Not sure when that's going to be, but when it happens, it will probably be within our footprint. It may stretch into another footprint a little bit depending on who the company is that we partner with from that perspective. But it's going to happen when it happens, Scott. Our strategy works. If you look at our performance and our earnings, all really strong, and we're going to continue to execute on this strategy and be very successful.

Perfect. All right.

Thank you very much, Darrell.

Thank you.

Thank you. Our next question will come from Gerard Cassidy with RBC. Your line is open.

Hi, Darrell. How are you?

I'm doing good. And you, Gerard?

Good, thanks. Just to follow up on what you just said about the approvals on commercial real estate, I think you said they're double from what they were prior. Can you share with us a little deeper, how did that happen, or what's changed to have more approvals?

You know, I think, you know, as we ramp back up with our new systems and processes that we have, you know, earlier in the year, we're just running as smoothly as possible. That has eased up now. Both our team in Peter Darcy's world, our first-line folks, as well as in the credit area with Rich Berry and his team, They're working much closely together with the people on the line, and things are just flowing through a lot easier. And that's not just CRE. We're also seeing it on the CNI front, both in commercial as well as in our business banking area. So I think the momentum is growing, and we're having a lot more success and a lot more wins and seeing more loans go on the books.

Very good. And then just to broaden the picture a little, If we step back for a moment, you've had in the past some very good insights on what's going on in Washington with the regulators, and we saw the notice of proposed rulemaking on matters that require attention, MRAs. Can you give us your view of how the regulatory environment is changing and how that may help your profitability going forward as well as maybe the industry?

Yeah, one of the big things that's happened and that we've started to see now is that We used to always get, when you have a review, you would get observations, and then if it was more serious, you might get an MRA or something really serious, an MRIA. From that perspective, observations are now being given, and the way we treat observations is you have a year to get it fixed before they come back the next year, and if it makes sense, we go ahead and get them done. That's what's really helped a lot. By just having... a recommendation to do something, you don't have the whole process and everything else that you have to do when you're trying to cleanse an official issue like an MRA or an MRI. So just that itself, the timeline to get it done is a lot faster, a lot less people working on it. As far as how much that actually reduces in head count and all that, I think it's definitely will be less people needed in the remediation areas. But, you know, we'll probably try to redeploy those folks, you know, in other areas throughout the company because those people were really important, very experienced people that you want to keep in the company from that perspective. So I don't look at it as too much as an expense save. I look at it as a way of just things getting done a lot faster, a lot smoother, and it gives our teams a lot more energy to be more productive as well, which is really, really important, I think, as we kind of look forward.

And just to stick with this for a second, obviously the Basel III endgame is coming up soon, maybe by the end of the year, first of next year. Many investors have identified the benefits to the money center banks. But in terms of regional banks, what do you see the potential benefits for you from the Basel III endgame being a lot less onerous than what was proposed in July of 23?

You know, our hope is that it's a lot more straightforward, really focused on, you know, key areas that we really, you know, should try to figure out what the capital is. In that original proposal, you know, they had adjustments for people bank R size, which has a very low market operation markets that to build something out that really we had very little risk in, didn't make a lot of sense, you know, what they were looking and charging for operational risk. It didn't seem very logical from that perspective either. So I'm sure it would be much more streamlined, much more trimmed down, and really focused on what's really needed from a capital perspective for the industry as well as for M&T.

Thank you. Appreciate the insights.

Thank you. Our next question will come from Erica Najarian with UBS. Your line is open.

Hi, thank you for taking my question. I just wanted to follow up on Scott's line of questioning. Darrell, you mentioned production picking up, you know, the approval rate that you just talked about with Gerard. But, you know, rates are, in theory, supposed to trend lower from here. You know, how should we think about the push-pull between, you know, some of these loans getting refied away from you and the production rate? In other words, is the fourth quarter still a good inflection point for when CRE balances at bottom? When can we start seeing period end balances start to tick upward in a more consistent way?

I would love to tell you the fourth quarter is the bottom. We hope it is, but you don't really know for sure. It really depends on what payoffs are coming through. I will tell you, though, in 2026, for the amount of maturity that we see come and do in 26, it's much less in 26 than what we had in 25. So we're starting out of the blocks in 26 with just less payoffs coming through, which is a positive. And with our production that we're growing, I think will be really helpful. So, you know, if I had to guess right now, it's probably bottoming in the first quarter, but maybe if we get fortunate enough, maybe it'd be sooner than that. But We feel really good that it's going to bottom and start to grow up. It's going to be a really good earning asset to get back to be positive momentum.

Got it. And maybe the second question, Daryl, is, you know, M&T has been known to have a conservative culture, and there has been a lot of credit noise recently, you know, whether it's related to NDFI or, you know, you know, credit pre-announcements, which always makes the market nervous. So, you know, you're in the first management teams to sort of call out NDFI and additionally the RWA treatment of NDFI via SSFA. So maybe my question is this, maybe walk us through what the NDFI exposure is for M&T. You did mention that, you know, loans to financial and insurance companies was the driver for CNI growth. and maybe help investors figure, like, what questions do we ask in order to really properly assess the credit risk from a go-forward perspective? Because all we're getting from other banks is that, oh, don't worry about it. This is way less frequency and way narrower severity than a direct CNI loan.

Yeah, no, thank you for the question, Erica. So if you look at our NDFI portfolios, If you look at it in total, we're one of the lower exposures. We're probably 7% or 8% of total loans is what we have in that big bucket. We really focus on businesses in this bucket that we really believe in, that are really good performing businesses, that are on the lower end of the risk scale. So we'll start with our top three categories. Fund banking, which helped with our loan growth this past quarter and pretty much throughout the year, has been growing nicely. Those are capital call lines, and we do those. But if you want to take more risk, which we don't, is you would do NAV lending, which we don't do from that perspective. So in that case, it's our choice to stay in the more conservative range. The other category that we have that we have a fair amount in is in our industrial CRE, made up a lot primarily from our REIT activity that we have. And we stay with really good conservative CREs. known REITs that perform really well. So very good from an institutional performance. The other business I'd like to call out is residential mortgage warehouse. You know, done properly from an operations perspective, you really can't lose money from a credit perspective. It's really an operational risk business. And if you have good operations and good controls in place, you know, it's a really safe business to run from that perspective. So So those are the ones that we have that are our largest. We do dabble in other ones. We do lend to BDCs, but we only focus on public BDCs. We don't do private ones. We don't think there's enough disclosure and just more higher risk oriented. So we kind of split that there. As far as your SSFA question goes, SSFA is basically transactions where you have securities you know, or loans that are basically put on the balance sheet in a structure. So there's no recourse on the loans, so your ability to get paid back is straight from the assets. I think the way we're looking at it is we have a very small exposure today, and you have to be selective on what assets you're going to put into these structures. You know, we have one structure that has loans, another structure that has mortgages. You know, most of our structures that we have is more in ABL right now. But the thing you have to really look at when you look at SSFA is that it's pro-cyclical. So you start off with a lower RWA, and it's because of the structure that you have. But as delinquencies increase, as the economy turns down, then your RWA automatically increases. So when times are really bad stress, these portfolios will actually use up capital and when you actually need capital the most from that standpoint. So we're aware of that, and we're just trying to take it very conservative from that perspective. Times are very benign now, but times could get a lot worse at some point down the road, and you just want to make sure you don't have too much of this pro-cyclical type structures on your balance sheets.

Thank you. Our next question will come from John Pancari with Evercore. Your line is open.

Morning, Daryl. Morning.

On the capital front, I know you're at 10.99 CET1 and net of the $409 million in buybacks. As you look out, I know you have your 10.75 to 11% target. Can you provide us your updated forecast thoughts around that target. What is keeping you from moving that lower and as you get clarity on the regulatory front and once you do have that confidence and the ability to move it lower, is the way to help us frame where you think a bank of your size and your regulatory considerations where you really could be operating at?

Thanks for the question, John. First, I'd start with when we look at where we're positioned right now, we definitely feel comfortable in repurchasing shares. We didn't buy back as much as we could have this past quarter just because we think the market was a little bit overheated and there was more risk into the environment, so we're a little bit cautious there. Our credit quality continues to improve really well, and that will probably continue, so we feel good about that. The other thing is we're a little bit price sensitive on how much we buy depending on when we buy it. So, you know, it went up much higher, you know, last quarter and we just bought less, you know, on a daily basis. So, I mean, right now, you know, we could buy anywhere from $400 to $900 million this quarter depending on how we feel about the economy and how we think the value of that stock is.

And in terms of your CEQ on target, the $10

7.5 to 11 range, what would you need to see to move that lower?

You know, that's a discussion we'll have with our board later this quarter when we get our strategic plan approved and go through that. But, you know, as we continue to perform, you know, we'll look for opportunities to potentially try to decrease our capital ratio down over time, as that makes sense. But that's really a Renee and board question. And we'll probably have something to say about that come our January earnings call.

Got it. Got it. Okay. And then if I could just throw in one more. On the, you know, just on the loan front, I appreciate the color you gave around the appetite around CRE and some of the loan growth dynamics. Can you maybe talk about competition a bit? Are you seeing, what are you seeing in terms of loan spreads? We're hearing a little bit more that competition is starting to bear down again and the larger banks are becoming even more of a formidable competitor to the regionals on the lending front? What are you seeing there in terms of, you know, front-end loan spreads in the commercial book?

Yeah, no, it's definitely much more competitive. You know, if you take and look at, you know, all of our commercial businesses, which is CNI and CRE together, you know, I would say spreads are down maybe 10 or 15 basis points approximately from what we were originating maybe a quarter ago. but we're still seeing really good production. We're doing really good in our business banking business. We don't talk much about business banking because it's really more of a deposit gatherer. It's three times more deposits than loans, but they've had really big success in the last quarter or two in growing their loan book and continue to build that out, which is really good for us. It's the smaller end of the commercial space, and it's really serving our communities and our clients in the right space. he'll get our returns with his pricing.

Got it. All right. Thanks, Daryl.

Thank you. Our next question will come from Chris McGrady with KBW. Your line is open.

Chris?

Chris, your line is open. Please check your mute.

There we go. Sorry about that. Daryl, if you think about operating leverage going into 2026 or the medium term, can you just speak to how you think this plays out in terms of widening, narrowing, and then the drivers between revenues and expenses?

What did you say is narrowing?

Just operating leverage. Is it going to widen or narrow?

Scott, banking is simple when it comes down to this long term, but You know, it's really just growing revenue faster than expenses at the end of the day. You know, we have a lot of momentum right now on our fee businesses. And if you look at our fees growing with trust, mortgage, and our commercial SWOT of products that we have in the commercial area to our customers there, you know, we're going to grow that, you know, really strong again this next year. So that's a positive. You know, we have positive momentum on our net interest margin. We got it up for the fourth quarter. We're going to hit 370s. So we have momentum there. And CRE is going to start growing as well. So we'll have all of our portfolios growing. So I'm pretty positive that our earning assets will start to grow maybe a little bit faster. And we'll still have good expansion on net interest margin from that. So I feel good overall. And I think that should come down to a good operating leverage number.

Thanks for that. And then I guess quick follow-ups kind of to part one. I guess the visibility into the improvement and the criticize that you've noted in the Cree book, I presume that'll continue. And then secondly, I just noticed a nuance in kind of your geography question about M&A. I think you said adjacent markets. Just if you could unpack that for a minute, that'd be great. Thanks.

Yeah. So from a credit quality perspective, you know, our non-accrual loans, came down to 1.1%, and that was really driven by both CNI and CRE. When you look at the criticized balances, it was really a function of the CRE portfolio. CRE portfolio basically decreased in every category in CRE, but really driven by multifamily and healthcare, and those were the drivers there. We're pretty optimistic that that will continue for the next several quarters, so we actually might think, pulling this slide out of our presentation in a quarter or two, because we'll be pretty much back to normal credit quality and normal operating from that perspective. So we feel really good and excited about that. As far as the geography goes, the only, I say, expanded geography is if you buy a bank that's, let's say, headquartered in one of the 12 states that we are, but they might have some exposure outside the 12 states, that's really how you might get a little bit, some more growth in another area. But it's still really focused on getting scale and density in the 12 states and in the District of Columbia where we operate.

Thank you. Appreciate it.

Thank you. Our next question will come from Manna Gosalia with Morgan Stanley. Your line is open.

Hey, good morning, Darrell.

Hey, good morning.

You noted in your credit comments a few one-timers and CNI NCOs that was embedded in the overall 42 basis point NCO number. And then I guess your guide for next quarter is 40 to 50. Are there more lumpy items that you're expecting next quarter? And, you know, I guess the bigger picture question is how do you expect that to trend into 2026? And, you know, what's a good normalized NCO run rate for M&T?

Yeah. Thank you for the question. So this quarter, I mean, our net chart is for 146. Yeah. It was really driven by two large CNI loans. They were two contractors that added up to $49 million, and that's really what drove us higher than our 40 basis points this quarter. As far as you go next quarter, we could have maybe another one or so in the fourth quarter, but we still think that net year to date we will come in for the year under 40 overall, so I think that's where it's kind of shaking out from that perspective. As far as next year goes, we aren't going to give any guidance yet and all that, but the economy still overall is in relatively good shape. There is stress in certain areas, but overall it's still in really good shape. So I wouldn't expect much change one way or the other for 26, but we'll give you more of that in January.

Got it. Separately, you spoke about more room on the operating leverage side. Some of your peers have spoken about accelerating investments in AI and tech. Can you talk a little bit about what M&T is doing there and if you will need to spend more next year as you invest there?

We definitely are spending a lot of money in the company. In the two and a half years I've been here, we've had some really significant projects that we've started and that we're starting to finish up like our in my world in the finance world the general ledger will go live probably in the next quarter or so so that that will be a big success and also a big drop in run rate but you know we have other projects you know right behind that that we're going to be investing in we're putting in a new debit platform for all to serve our customers that's going in we're looking at a commercial servicing system that needs to get upgraded, consumer servicing system that needs to get upgraded. So there's other investments out there. From a data center perspective, our two data centers are up and operating. We're still moving applications over there. That would take another year or two to get that fully accomplished. And Mike Whistler and his team are putting as many applications as we can up into the cloud So we can maybe get out of doing some of the data centers, which in the long run will actually reduce costs. So I think our costs will be controlled. I think our revenues will grow more than our expenses. But we're going to continue to invest in our company and do the right thing and continue to have really strong service quality for our customers and really predictable, sustainable platforms that serve.

Got it. Thank you.

Thank you. Our next question will come from Matt O'Connor with Dolce Bank. Your line is open.

Good morning. Just a bigger picture question on credit, you know, which is obviously driving the regional bank stocks today. You know, we're seeing some of these kind of one-offs in commercial that, you know, according to the media are fraud related. But what are your thoughts in terms of like why we're seeing these events now and with weights kind of coming down, I thought maybe that would have taken the pressure off. But just any big picture thoughts as you guys kind of sit around and think about the credit environment. I'm sure you'll talk about some of these kind of positions out there if you don't have any thoughts on that.

You know, a lot of people have a lot of different ideas on this. I think one of the things we think about is we've seen stress out in the marketplace for a while. So if you look at the consumers, we've been saying for years that the lower end, call it the 20% and lower end, are really hurting in that space. And those are the ones that are paying the higher credit card yields and all that. And it's really tough for them when they have to pay these high interest rates. If you look, we've tightened a little bit in our small business areas. So business banking has pulled back a little just because of You know, some of the weakness we were seeing there in the last year or so. And we have a leasing business that also we tightened up there as well. So on those areas, you know, where there's stress, I think there's, you know, things that we're just trying to tighten and see. But there's definitely stress out there. And sometimes people can only go so long. And then they have to kind of throw in the towel. You know, on the larger end, commercial, you know, there's sectors that have been impacted, you know, in certain situations, whether it's tariffs or just how they're operating, private equity coming into buying. Some of these companies, sometimes it's a good thing, sometimes maybe not because they aren't experienced in trying to run these companies like the original teams were. So you see one-offs from that perspective. So there's things you have to be careful for. What we really focus on is the fundamentals, Matt, and really try to make sure we're underwriting and looking at everything we can, making really good, sound decisions for the long term. We don't want to put loans on the books that aren't going to be there in the next year or two because of a credit situation. So we're trying to do that and trying to be really holistic. Rich Berry, our chief credit officer, he set up some verticals and some specialty areas for like our leverage lending area and a couple other areas just to focus on to make sure that, you know, we have controls in place in areas that we deem as higher risk in place. So I think we're doing all the right things, really trying to be guarded from that. But, you know, net-net, you know, if rates come down more, I think that will relieve some of the pressure. But right now, I think you're just seeing some of the pressures from it's been elevated for a while.

That's helpful. And then I'm sure it's a lot easier to kind of get comfortable with your book. You know, you originated them, you can kind of evaluate it kind of on an ongoing basis. And I guess hypothetically, if you were kind of looking at an external book, do you still feel like there's enough visibility where you could evaluate it? Or are there enough red flags, again, just kind of generally in credit, these headlines that you're seeing that that might give you a little pause? All hypothetical, obviously.

You know, I think, I mean, it sounds like you're trying to lead to a question if we do a due diligence on a company and you're looking at a credit book and all that. I mean, it really, if that's where you're going, it really starts with the culture and, you know, do they underwrite similar to how we underwrite? And that needs to get established up front from that perspective. And you really need to know that and trust that. Like when we acquired People's, You know, we knew day one that their culture was very similar to the M&T culture, and that would fit in quite nicely from that perspective. But, you know, when you look at stuff, you have to be really careful and ask a lot of questions and information and, you know, keep digging until you get satisfied. I mean, I think that's the way it works. You have to do your homework. It all comes back down to fundamentals again.

Okay, that's helpful. Thank you.

Thank you. Our next question will come from Dave Rochester with Cantor. Your line is open.

Hey, good morning, Daryl. Good morning. Back on your margin comment you mentioned earlier, you had some momentum there guiding to that 370 level in 4Q. Do you see any upside potential of that going forward, given your outlook for more Fed rate cuts on the one hand, and then given the repricing that you see you still have left to do on the fixed rate segments of your loan securities books?

So, I mean, what we have modeled right now is we have two cuts in this year and three cuts next year, so five cuts total. And when we do our modeling, our base scenario embeds the forward curve. So when you look at that and then you look at a down 100, you know, our down 100 is basically flat from an NII perspective. So that's really rates going down 200%. from that so i think we're very neutral from that perspective um if rates go up 100 which is basically rate staying flat because you got the forward curve embedded into that you know we're we're off you know just a touch so a little bit um i guess i'd say we're a little bit more liability sensitive on the way up a little bit but the way our balance sheet is really structured is we have to hedge to kind of have the position that we are at and if we don't do any hedging on how we operate, within a year we can become very asset sensitive very quickly, just naturally as things happen. So we're constantly having to hedge to kind of neutralize our interest rate sensitivity from that perspective. So we feel really good about where our net interest margin is. We do have a piece of it, obviously, based upon the shape of the yield curve. That's also impactful for us. that's still, we're still benefiting from that from a roll-on, roll-off basis. If you look at our loan book, you know, in the consumer book that we have, we're still probably getting about 75 basis point spread positive there. Investment portfolio is probably going to be anywhere from 50 to 75 basis point positive there from that perspective. So we're still benefiting from the roll-on and roll-off from that perspective. So that's really good. And in our deposit betas, Our 54%, you know, we came in, and we think that's pretty much what it was when rates were going up. So coming down, we're going to mirror that as well. So we feel very good that we'll stay in the low to mid-50s from a beta perspective. So I think we got things positioned pretty well from a sensitivity perspective on NII and feel good of what we're guiding to.

So it sounds like it all adds up to, you know, some upside potential there to that 370 going forward, all else equals. Great. Maybe just back on your comments on the government shutdown and M&T being ready for that. It doesn't sound like you're too concerned about it right now, given your comments, but when would you start to get worried about it from a credit perspective? How long would this have to drag on before you guys get more concerned about it?

You know, from a government shutdown, we are monitoring and looking at various sectors that potentially could happen. Obviously, it hasn't been around long enough but we've seen some stress in governing contractors. Obviously, this puts more stress on them because of the shutdown, so that's important. The SBA business has kind of shut down right now, so that's some stress from that. HUD and FHA, we're looking at that to see what impact that might have. You have CNI Healthcare from a reimbursement perspective. That will probably impact if it goes longer. Reimbursements might slow down or stop. and then nonprofits that get grants, and then government employees, which is heart and soul of the government, those people at all. So we're monitoring all those areas. Haven't really seen anything yet. But if it goes on a few months, I think you're starting to see some stress maybe.

Yeah, okay. Maybe just one last one. I was hoping you'd just give a little update on your exposure, if you have anything, to the tricolor situation. I know you don't have any credit exposure. But if you just talk about anything like from a legal perspective or anything else there, it'd just be great to hear how you're assessing that risk just given Wilmington's roles there.

Yeah, yeah, happy to talk about it. So first of all, as we've publicly reported, there are allegations of fraud, which is never good for an industry overall. And unfortunately, we will have from time to time but we expect that the industry will improve over time to make sure that such events happen less frequently. We are and always have been a very client-centric culture and company, and we will always strive to provide the best services and execution. We've got a thorough review of what we're looking at and enhancing our quality and service. We still believe in our corporate trust business, feel good about where we are and just looking for better ways to partner with our clients. Regarding your current question that you have, it clearly will play out over a long period of time. It's really not helpful to speculate what's going to happen from that perspective. Our roles in the transaction, we have no lender exposure from M&T or Wilmington Trust whatsoever. Our roles that we have there were... focused in the warehouse, account bank, and custodian, and on the securitization roles, owner trustee, indenture trustee, custodian, paying agent, note register, and certificate register. Those were our roles that we have from that perspective. So there's no credit exposure that we have there. So I think that's really what we see right now, and we're just going through the process and seeing how things play out. And, you know, there will probably be people that sue other people just because of the bankruptcy and what happens. But we'll see, you know, if we're impacted or not from that. We don't know.

All right. Thanks, Darrell. Appreciate it.

Thank you. Our next question will come from Ken Yousend with Autonomous. Your line is open.

Hey, great. Hey, Darrell, just one quick one. You mentioned in the slides that the fourth quarter expense stuff up. You pointed out professional services. I know you guys typically do have higher expenses third to fourth. But I'm just wondering, is that a specific nuance that you're just finishing some projects or something like that? And just obviously, you know, we'll hear more in January about what next year's expenses look like. But I just want to know if that's atypical or more kind of the normal ramp that we typically see towards year end.

You know, Ken, we have a lot of projects going on, and we're just trying to get some of them finished off. So it's kind of the cost of getting things done is just increasing expenses from a professional services perspective. We'll give you guidance for 26, and we will make sure that we have revenue growing faster than expenses.

Okay. All right. Got it.

Thanks for that clarification. Bye.

Thank you. Our next question comes from Christopher Spahr with Wells Fargo. Your line is open.

All right. Thanks for taking the question. First is the buybacks during the quarter, and you kind of indicated like you were being a little price sensitive. You know, just with the accumulation of capital, regulatory relief coming in, AOCI becoming even more favorable for you. I'm a little surprised that you kind of talked about kind of being price sensitive, just given where the overall stock is in your accumulation of capital.

You know, we just have a grid that we have, Chris, in that, you know, depending on what the tangible book level is and what we're trading at, we have certain amounts that we buy at certain levels. And we adjusted its fluid from that perspective. But just like investors out there, you know, we're investing in our company as well, and we think of it the same way.

Okay, and as a follow-up, with five rate cuts kind of in the forward curve, what is your outlook for deposit growth over the next year or so? Thank you.

Yeah, you know, my guess is our deposit growth, and we'll give you guidance in January, but deposit growth and loan growth shouldn't be much different than really the growth of the economy, you know, plus or minus a little bit is what it is. So economy grows two or three percent, I think it'd be in that same neighborhood.

All right. Thank you.

Thank you. This concludes today's Q&A. I will now turn the program back over to our presenters for any additional or closing remarks.

Thank you all for participating today. And as always, if clarification is needed, please contact our Investor Relations Department. Have a good one.

Thank you, ladies and gentlemen. This concludes today's event. You may now disconnect.